"Welcome to My Mortgage Hell"

In March 2005 Karla Hodges seemed to have her life impressively in order. Her two sons were happy, her nursing job paid $92,000 a year, and thanks to a liberal lending climate, her bank had preapproved her for a home mortgage of more than half a million dollars. The then 32-year-old single mother, who'd struggled to put herself through school and raise a family in pricey Northern California, was feeling pretty good about things. She'd finally earned herself a piece of the American dream.

Hodges' mother, who had been needling her daughter for years to buy a home, was thrilled. But Hodges suspects that her mother, who'd bought in a very different era, knew little about how the real estate market worked in California. "I grew up in Chicago in a red brick house that my parents afforded on middle-class salaries," says Hodges, an energetic beauty with dark eyes and an easy laugh. "My mother couldn't understand how it was possible that I could be making all of this money and still be renting. When I got approved for that mortgage, she really celebrated."

Hodges took her loan guarantee and shopped for a place to raise her boys. She settled on a 1924 Craftsman bungalow with a view of the water near the San Francisco Bay and a price tag of $432,000--a full $100,000 less than the amount she'd been approved for. Although that figure would buy you a palace in some parts of the United States, in the famously stratospheric real estate market of Northern California, it got Hodges a modest two-bedroom. But the house was located within reasonable commuting distance from her work and in decent repair, with hardwood floors and knotty pine walls. She loved it. "The house was so cute," Hodges says. "It was up on a hill and it had a view of the water. It had a huge backyard and two side yards. I really wanted to put a swing set in the backyard and an Endless Pool in one of the side yards."

Along with the great view, Hodges says, the house also came with daunting monthly payments of $2,363, but she wasn't worried. She'd been given the loan, she made a good living, her job was stable, and in the bubble economy of 2005, the common assumption was that all real estate investments were good ones. Moreover, her bank was making the purchase less onerous by allowing her to finance the entire house with no down payment required. In fact, the day after Hodges bought her house, her savings account looked about the same as it had the day before. As nervous as she was, she didn't see any reason to second-guess her decision. If her lender had so much faith in her, she reasoned, then why shouldn't she have faith in herself?

Hodges' first night in her new house was scary and exhilarating. "My oldest, Dakarai, was running around the rooms yelling, 'It's our house, it's our house!'" Hodges recalls. "When I tucked him into bed that night, he said, 'This feels like home.' That was a good night for me."

Two years later she had to tell her boys they were moving. "I called the lender and said, 'This house is eating me alive. I want out,'" she says. Her credit was ruined and her savings account was empty. Her voice mail overflowed with messages from her mortgage lender, and she felt incredibly stressed and anxious.

Emotionally exhausted, Hodges let the bank take over the house. Giving up the one measure of success that really seemed to register with her mother, Hodges rejoined the ranks of the renters.

There is, of course, no shame in renting. But when we think about success in the United States, most of us don't envision writing a check to a landlord every month. To own a home means you've grown up, settled down and staked a claim in the world. And, increasingly, it distinguishes you as a modern woman. Before the seventies, it was nearly impossible for a woman, married or single, to even qualify for a mortgage. (A woman who wanted to take out a home loan often had to sign a "Pill letter" or "baby letter," pledging that she would not or could not get pregnant--the assumption being that motherhood would immediately render her financially unstable.) But by 1995, according to the National Association of Realtors, 14 percent of home buyers were single women, and in 2007 that figure was 20 percent. Single men, who are less likely to live with children (and, incidentally, more likely to live with their parents), buy homes half as often as single women do. Even among married couples, the woman--thanks to her better credit or general amenability--is increasingly the sole signer on the loan.

So what happens to the women who can't keep up that financial commitment? It's a common scenario these days: Anyone who's turned on the evening news in the past year knows that real estate is not the happy story it once was.

A nutshell summary of what's happened: A lot of people bought homes using a subprime mortgage (loosely defined as a mortgage with an interest rate that wasn't at the government standard) with a monthly payment they thought they could afford (often without putting any money down). But they got in trouble when adjustable rates pushed their monthly payments up hundreds or thousands of dollars. As payments went up, property values were falling, so owners could no longer recoup a real estate investment by refinancing or selling. This past March, RealtyTrac, an online foreclosure marketplace, reported that more than 230,000 homes were in foreclosure. And single women are more vulnerable to foreclosure because their incomes tend to be lower than those of their married counterparts. What's more, the Consumer Federation of America reported in 2006 that women were more likely to take out subprime loans than male borrowers.

When it came to income, the general rule in the subprime market was something along the lines of "if you say it, we'll believe you." Needless to say, there was plenty of fudging--and not just on the part of borrowers.

"People were stating income that wasn't there and the mortgage brokers were inflating beyond even that," says Laurence H. Michelson, a mortgage expert and founder of the Southern California-based mortgage brokerage firm Granite Lending Inc. In short, he explains, "people were allowed to buy houses they couldn't afford."

Hodges hadn't exaggerated her income, but she also hadn't built up her savings. Ten years ago, it would have been virtually impossible for anyone without an adequate savings account to get a loan. She didn't have enough money for a down payment or even a reasonable amount set aside for emergencies. But in the market in which Hodges bought her home, that didn't seem to matter--until it did. In January 2006, 10 months after buying the house, she got bronchitis. By February it had developed into pneumonia, and she was forced to miss several weeks of work. In April she shattered her wrist in a fall and required surgery a month later. All these health problems chipped away at her bank account.
"I started missing payments in February," says Hodges. "For the next seven months, I was either missing payments or making partial payments."

Hodges, who characterizes the process as "the longest foreclosure in the history of the universe," spent the next year buffeted by volatile emotions, rash decision making and constant negotiations with her lender. The stress was taking a toll on her kids, particularly Dakarai, who at 12 was old enough to feel territorial about his home.

"I had real estate investors over to look at the house," Hodges recalls. "I told them to be discreet around my kids, but one guy started using words like foreclosure and saying, 'You're going to lose your house.' Dakarai got really upset. He started pacing around, telling the investor that the house had rats and that he shouldn't buy it."

Meanwhile, her mother was diagnosed with advanced-stage colon cancer, and Hodges had to make several trips home to Chicago. Again, the house payments fell by the wayside.

"My mother was about to die," she says. "I got on the plane knowing I was going to be foreclosed. I got home from the airport and there was a letter from the bank asking when they could pick up the keys."

Hodges never told her mother that the house was in jeopardy. The woman who'd so badly wanted her daughter to become a home-owner died believing that she had. In truth, Hodges surrendered her keys a few weeks later. She owed the bank more than $32,000.

Nobody is arguing that women should go back to signing Pill letters or waiting until they marry to own property, but even after a tsunami of foreclosures, the lending market can be predatory, and people who don't have the financial resources to buy homes are still given loans for them. So women who want to own "have to be smart about it," says Tara-Nicholle Nelson, a lawyer, real estate broker and author of The Savvy Woman's Homebuying Handbook. "The women of Generation X tend to see their homes as a financial asset more than a shelter. They see them as wealth-building vehicles. It doesn't always work out that way."

That modern idea of home ownership has led an astonishing number of otherwise intelligent people--even actual rocket scientists--to be less than smart about the homes they bought. Take Kim Monaghan, a 35-year-old aerospace engineer with the defense contractor Northrop Grumman, who purchased a three-story house in a canyon in Rancho Bernardo, an affluent community in San Diego, for $436,000 in 2005.

"I was never one of those 'when I grow up my house has to be exactly this color and have this kind of yard' kind of people, but I liked this one because it was in a good neighborhood," says Monaghan, a blue-eyed blond whose girl-next-door looks belie a serious demeanor that grows almost fierce when she talks about her experience as a homeowner. "I wanted someplace where I wouldn't be afraid to walk my dog at night."

The house had two master suites, an office, vaulted ceilings, hardwood floors, marble tiles in the bathrooms and a two-car garage. Monaghan didn't just fall for the amenities, though. With a salary of $120,000 a year, she was in a high-income tax bracket and looking for a write-off. "I was losing so much money to the government, and everyone kept telling me, 'You're an idiot--go buy something!'" Monaghan recalls. "So I finally said, 'OK, I'll buy a house.' "

Despite her high income and excellent credit score, Monaghan was still paying off her student loans and didn't have any money for a down payment. That made her a logical subprime candidate. In discussing her loan options, she told her mortgage broker that she didn't mind an adjustable rate mortgage as long as it didn't reset for five years. Monaghan says she instead ended up with a loan that adjusted after three years and came with two separate monthly payments: around $1,630 for the adjustable rate mortgage and another $700 for a second, smaller loan. She discovered the discrepancies when she arrived at the escrow office to sign the closing papers. By then, however, she was literally homeless. She'd been transferred to Southern California by her company a month earlier, but her temporary housing allowance had run out, and she was now staying with a friend.

"I was like, I can either sign these papers and suck it up, or I can go back to the beginning and redo the loan altogether," recalls Monaghan, her voice rising in anger. "I should have said, 'No, hold off, I need to fix this loan.' But at that point, I was so desperate to get off my friend's floor I thought, All right, I'm just gonna suck it up and do it.... I'm one of those very logical, meticulous people who always does a lot of research before doing something. This is the one time I didn't do my homework, and it kicked me in the ass."

Three years later Monaghan's mortgage payment has jumped to $4,000 per month. Meanwhile, housing values have dropped, and she says she now owes $503,000 on a house she suspects is worth $430,000 or less. Her endless fights with her lender are causing problems in her relationship with her boyfriend ("He says, 'You're an intelligent person; why did you do that?'" she says with a sigh), and her deteriorating credit score may even affect her job at a company that manufactures missile systems and spy planes. "They're worried about people selling information, and financial problems are one of the big reasons people do that...everyone at the office knows I'm dealing with this. I have to make phone calls during work hours. I've been known to throw papers around in frustration," says Monaghan.

As bad as things are in California, which saw its foreclosure rate double between 2006 and 2007, the states with the highest percentage of foreclosing home loans are Indiana, Ohio and Michigan, according to the Mortgage Bankers Association. In Kalamazoo, Michigan, residential streets are lined with for-sale signs. And Kristen Brockmeyer, a petite 27-year-old with bright eyes and a serene smile, suspects the modest fifties-era three-bedroom house that she just relinquished to the bank is worth less than half of the $79,000 she and her husband, Zack, paid for it nine years ago. "We bought it when we were 19," Brockmeyer says, gazing out the window of a favorite coffee shop. "I was making about $10 an hour. They looked at our credit reports and neither of us had anything--nothing bad, nothing good. It wouldn't have gotten us a car, but somehow they gave us $80K for a house."

The Brockmeyers didn't know to ask for an inspection report, and they didn't factor in money for repairs. They loved that the house had hardwood floors, but they couldn't afford to refinish them. Meanwhile, the back steps were made of plywood, a sliding door was coming off its rails, there was mold in the basement, and the bathtub wasn't hooked up to the main sewer. After a few years, the plumbing beneath the kitchen sink deteriorated to the point that the water had to be collected in buckets and then dumped out in the backyard.

Brockmeyer's name alone was on the deed and loan papers, so despite her husband's contributions, she felt responsible for the payments. And while Brockmeyer doesn't feel she was cheated by the bank ("We just made every mistake in the book," she says), she did get saddled with the ballooning payments that are one of the hallmarks of subprime loans. By the time the payments had jumped from $565 to $790 a month, the Brockmeyers had fallen behind.

"For the first few years, we'd scrape by paycheck to paycheck but manage to make the payments," she says. "I borrowed money from my parents so many times. I guess I figured that by the time the payments topped off, I'd have a better job. I was a receptionist at the time. By the way, I'm still a receptionist."

For all they appear to have going against them--their youth, their limited education, their shaky incomes--the Brockmeyers are an impressive unit. They're both articulate and energetic, and possess that calm Midwestern temperament that favors stoicism over melodrama. But their situation demonstrates just how dangerous the waters of real estate can be these days. Despite decades of conventional wisdom that says a house is the safest investment in the country, their story--like the stories of Karla Hodges and Kim Monaghan--shows what a gamble it can be, especially when bankers behave like they're dealing rounds of blackjack. All three women are now looking for a way to get out from under.

"I've been in a constant state of stress for years," Brockmeyer recalls. "One day I asked myself, Why am I fighting so hard? It was like an epiphany."

This past February, after deciding to let go of their house, the Brockmeyers packed up their things and moved into a rental house. At $850 a month, it'll still be a stretch for them. But they won't be plagued by the guilt and humiliating phone calls that come from being $8,000 in arrears. What's more, the rental--a light and airy Dutch Colonial with three bedrooms and two bathrooms--is larger and in a much better neighborhood than their old place.

"We may have conceded defeat," Brockmeyer says. "But we feel like we're in a better situation now."

It will, of course, take them years to repair their credit--and they're lucky to have found a landlord who is renting to them despite their financial history--but the Brockmeyers' case might be among those for which foreclosure is actually the best option. To be sure, that's a controversial perspective. Declaring bankruptcy or ruining your credit through foreclosure can make it difficult to obtain anything--even a cell phone plan or a cable TV subscription--later on. But as expert Tara-Nicholle Nelson points out, these are highly individualized choices.

"You need to have clarity about what you want your life to look like," Nelson says. "If you want a sustainable, enjoyable lifestyle, maybe fighting tooth and nail to hold on to a house that you'll never be able to afford is not the best decision."

Kim Monaghan says she'd be happy renting for the rest of her life. If she decides to sell her house at a loss, she will not buy another one.

"There's nothing that says, 'You are 30 years old, therefore you must own a house and have children and be married and be happy,' " says Monaghan, who's never been married and has no children. "People kept saying, 'You're an idiot if you don't buy something at least as a tax shelter.' Well, I was an idiot: In my engineering training, I took four years of calculus...I could have used a lesson in financial planning."

Although women have come a long way since the days when we couldn't get a loan without a husband, some of us still have miles to go when it comes to the nuts and bolts of owning a home.

"Women view a house as the ultimate self-improvement, lifestyle-transformation design project," Nelson says. And that can be dangerous. "You use your home as a way to express who you are. But a property alone doesn't change your life, nor should the market dictate your decisions. When the time is right for you to buy, that's when you should buy," she says.

Meantime, renting can be a feel-good option. Like the Brockmeyers, Hodges found a rental that is far more luxuriously appointed than the house she owned. It has three bedrooms and a fireplace. And while she never was able to put her coveted swing set behind her old place, the rental house just happens to have a jungle gym on the fenced-in lawn.

"This has always been my dream," says Hodges, standing in her kitchen and looking out into her backyard. "A sliding glass door leading out to a yard that my children could play in. I dreamed of opening the door and saying to the kids, 'Why don't you go outside for a little while?' And look what I have here: a sliding glass door."

Meghan Daum is a freelance writer living in Los Angeles. She is the author of The Quality of Life Report.

The Department of Housing and Urban Development is a wealth of information about how to avoid foreclosure, and what to do if you're at risk. You can even find a HUD-approved housing counselor by clicking here.

The Department of Housing and Urban Development is a wealth of information about how to avoid foreclosure, and what to do if you're at risk. You can even find a HUD-approved housing counselor by clicking here.